Is Built-to-Rent a Market, or a Phase?

Is Built-to-Rent a Market, or a Phase?

Construction of single-family homes that are built-to-rent is making up a smaller share of new-home construction, according to newly released Commerce Department data.

In the first half of this year, builders began construction on 10,000 homes intended to be rentals—just 3.1 percent of all home starts, according to Robert Dietz, an economist with the National Association of Home Builders. While that is still above the nation’s average of 2.8 percent, the number of built-to-rent single-family homes is slowly dropping from recent highs. In 2013, the single-family built-to-rent market made up 3.2 percent of home starts; in 2012, it was 5.8 percent.

However, economists note that percentages may have been elevated in past years because overall home construction was low, which allowed built-to-rent homes to make up a larger percentage of the market. Also, builders say built-to-rent grew following the recession, as demand for rentals expanded.

“We’re going back to 2 percent to 3 percent over the long run as first-time buyers come back into the marketplace and the rest of the single-family [for-sale] market expands,” Dietz notes.

Still, the trend may not fade completely. Some builders are reportedly getting into the merchant-building industry, in which they’re constructing homes to be sold to investors who plan to operate them as rentals. Builders report a growth in the pool of institutional buyers from real estate investment trusts such as American Homes 4 Rent and Colony American Homes Inc. Lennar Corp.’s Chief Executive Stuart Miller recently said the company is considering getting into the merchant-building market.

Paxis Group, a real estate company based in Atlanta, says it has begun construction on up to 375 homes in Illinois, Georgia, North Carolina, and South Carolina that will be sold to investors as rentals. The four- to five-bedroom homes will be built next to other new owner-occupant homes.

“The constant question is if this is a market or a trend,” John Wojtas, president of Paxis Group, told The Wall Street Journal. “I really do think it is a permanent market here to stay.”